Can a seller exclude a flat separately stated shipping-and-handling charge from taxable receipts?

Plain-English summary

Linen World, Inc. sells linens through a party plan: demonstrators show goods at parties hosted by "hostesses," orders are placed, and Linen World ships the goods to the purchaser or hostess. It adds a flat $.99 "shipping/handling" charge to every order — the same $.99 regardless of the order's size, weight, shipping distance, or actual cost — and the charge doesn't say how much is "shipping" versus "handling." It asked whether that $.99 is excluded from taxable receipts.

The Department held the $.99 charge is taxable — the transportation exclusion doesn't apply, so the whole receipt is taxed.

• The exclusion exists but is conditional. "Receipt" excludes the cost of transportation of property sold at retail where separately stated (§ 1101(b)(3)). A charge is treated as separately stated if it can be computed from the bill (20 NYCRR 526.5(g)(3)).
• It must be reasonable and identifiable. To qualify, transportation charges must be reasonable in relation to prevailing established rates (20 NYCRR 526.5(g)(4)).
• This charge fails both ways. The flat $.99 bears no relation to actual transportation costs, and Linen World didn't separate the transportation portion from the "handling" portion.
• Result. The exclusion doesn't apply, and the entire receipt — including the $.99 — is taxable under § 1105(a) (Lillian Vernon Corporation, TSB-H-82(148)S).

What this means for you

A separately stated "shipping and handling" line isn't automatically tax-free. New York only excludes the genuine transportation cost, and only when it's separately stated and reasonable relative to prevailing rates. Bundling "handling" in — or charging a flat fee unrelated to real freight — defeats the exclusion.

Split shipping from handling. "Handling" is not transportation and isn't excludable. If your invoice lumps them into one number, none of it qualifies, and it all becomes part of the taxable receipt.

Flat fees are risky. A single flat charge applied to every order regardless of weight or distance looks nothing like an actual freight rate, so it won't meet the "reasonable in relation to prevailing established rates" test. Tie the charge to real transportation cost if you want it excluded.

Common questions

Q: I add a flat shipping/handling fee to every order. Can I leave it out of taxable sales?
A: On these facts, no. A flat fee unrelated to actual transportation cost — and not split between shipping and handling — doesn't qualify for the transportation exclusion, so the entire receipt (fee included) is taxable.

Q: What would let me exclude the transportation charge?
A: Separately state the actual transportation (delivery) cost, keep it reasonable relative to prevailing established rates, and don't bundle non-transportation "handling" into the same figure.

Q: Is "handling" ever excludable?
A: No. The exclusion is for the cost of transportation. Handling charges are part of the taxable receipt.

Citations and references

Statutes:

• Tax Law § 1101(b)(3) — definition of "receipt"; transportation-cost exclusion
• Tax Law § 1105(a) — tax on retail sales of tangible personal property

Regulations:

• 20 NYCRR 526.5(g)(3) — when transportation charges are deemed separately stated
• 20 NYCRR 526.5(g)(4) — charges must be reasonable in relation to prevailing established rates

Cases and prior guidance:

• Lillian Vernon Corporation, TSB-H-82(148)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1984.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a84_10s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-84(10)S
Sales Tax
March 23, 1984

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S831205A

On December 5, 1983 a petition for advisory opinion was received from Linen World, Inc.,
1650 William Street, Buffalo, New York 14206.
The issue raised is whether section 1101(b)(3) of the Tax Law excludes from the definition
of "receipt" separately stated shipping/handling charges collected by the taxpayer from the purchaser,
where the taxpayer is engaged in the sale of merchandise by party plan, and where the charge is a flat
amount intended to cover the cost of transporting the products from the taxpayer's place of business
to the purchaser, either by direct delivery to the purchaser's residence or by delivery to the hostess
of the party who in turn either delivers the merchandise to the purchaser, or arranges for the
purchaser to pick up the merchandise.
Petitioner is in the business of selling linens and other tangible personal property through a
party plan under which Petitioner sends out demonstrators to attend parties organized by hostesses
at which the demonstrators show off various goods. An order is placed for the goods and Petitioner
then orders the goods from the manufacturer, who ships the goods to Petitioner's place of business.
Petitioner then transports the goods to the purchaser's residence or, more commonly, to the hostess,
who either delivers the merchandise to the purchaser or arranges for the merchandise to be picked
up by the purchaser.
The cost of transportation for shipping the goods from the manufacturer to Petitioner is
included as part of the sales price for the merchandise. A separate shipping/handling charge of $.99
is imposed by Petitioner for delivery of the goods from Petitioner's place of business to the hostess
or the purchaser. The same $.99 shipping/handling charge is imposed regardless of the size or weight
of the order or the distance shipped and regardless of the actual costs of shipment.
The separate statement of the $.99 charge does not indicate which portion of the charge
represents "shipping" and which portion represents "handling".
Section 1101(b)(3) of the tax law defines the term "receipt" as:
"The amount of the sale price of any property and the charge for any service taxable under
this article, valued in money...without any deductions for expenses...and excluding the cost of
transportation of tangible personal property sold at retail where such cost is separately stated in
the written contract if any, and on the bill rendered to the purchaser." (Emphasis added)
Regulation 526.5(g)(3) provides that transportation charges shall be deemed to be separately
stated if they can be computed from information appearing on the bill.

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-84(10)S
Sales Tax
March 23, 1984

Regulation 526.5(g)(4) provides that to qualify for the exclusion, transportation charges must
be reasonable in relation to prevailing established rates.
Accordingly, since the $.99 shipping and handling charge bears no relation to actual
transportation costs and since petitioner did not separately state the portion of the charge which
constitutes transportation charges to its customers, the entire receipt is taxable under section 1105(a)
of the Tax Law. Lillian Vernon Corporation, State Tax Commission, October 22, 1982, TSB-H­
82(148)S).

DATED: March 5, 1984

s/FRANK J. PUCCIA
Director
Technical Services Bureau